Sanctions

What sanctions actually are

Sanctions are restrictions, on trade, financial transactions, asset ownership, or travel, imposed by a government or international body on a target country, entity, or individual to pressure a change in behaviour. They sit deliberately between diplomacy and military action: stronger than a diplomatic statement, intended to avoid the escalation risk of direct military engagement.

The underlying theory is that economic pressure, cutting a target off from markets, assets, or financial systems, can force a change in conduct that diplomacy alone can’t achieve. The historical record on whether that theory works is genuinely mixed, but sanctions remain one of the most frequently used tools in modern foreign policy regardless.

The main types of sanctions

Sanctions take several distinct forms, often combined within a single programme. Comprehensive sanctions prohibit virtually all economic activity with a target country. Targeted, or “smart,” sanctions instead freeze assets and block transactions with specific individuals and entities, such as those on the Specially Designated Nationals list, without cutting off an entire country’s economy. Sectoral sanctions restrict specific industries, energy, defence, finance, rather than applying broadly. Arms embargoes restrict military equipment and technology specifically. Travel bans and asset freezes target named individuals directly.

Who actually administers sanctions

Three regimes matter most for global compliance programmes, and they don’t always align. The US Treasury’s Office of Foreign Assets Control administers and enforces US sanctions, targeting countries, terrorism, narcotics trafficking, and other designated threats. The UN Security Council can impose sanctions binding on all 193 member states, the broadest legal authority of any sanctioning body, though enactment requires Security Council agreement, which major-power vetoes can block. The European Union imposes sanctions through Common Foreign and Security Policy Council Decisions, requiring unanimous consent from all member states, binding on EU nationals and anyone doing business in the EU.

The UK runs its own independent regime since leaving the EU, administered by the Office of Financial Sanctions Implementation, OFSI, part of HM Treasury. Canada, Australia, Switzerland, and Japan maintain their own programmes too, which often, but not always, align with US and EU measures.

Primary vs secondary sanctions: the distinction most content skips

This is where a lot of introductory sanctions content stops short, and it’s genuinely important. Primary sanctions apply directly to US persons and entities: American citizens, US-based companies, and anyone acting within US jurisdiction are prohibited from dealing with a sanctioned target. Secondary sanctions extend that reach extraterritorially, threatening non-US persons and companies with US consequences, loss of access to the US financial system, in particular, if they conduct significant transactions with sanctioned parties, even where neither party is American.

Secondary sanctions are what gives US sanctions global reach far beyond direct US jurisdiction, largely because of the US dollar’s role in international trade and finance. A non-US bank with no American operations can still face serious consequences for processing dollar transactions connected to a sanctioned entity, which is why sanctions compliance matters even for firms with no direct US presence.

Sanctions regimes compared

The practical consequence: a transaction can be entirely legal under one regime and a serious violation under another. A global firm needs to screen against all the regimes relevant to its footprint, not assume compliance with its home jurisdiction’s list covers everywhere it operates.

What sanctions violations actually cost

OFAC’s civil penalty framework, tied to the International Emergency Economic Powers Act, allows fines up to roughly $1.3 million per violation or twice the value of the underlying transaction, whichever is greater, adjusted periodically for inflation. Criminal violations carry penalties of up to $1 million and 20 years’ imprisonment for individuals found to have wilfully violated sanctions.

These aren’t abstract figures. Because violations are typically assessed per transaction, a firm processing many prohibited transactions over time, rather than a single incident, can accumulate exposure into the hundreds of millions or more, which is exactly the pattern behind several of the largest sanctions settlements on record.

Unilateral vs multilateral sanctions

UN sanctions are multilateral by design, requiring Security Council agreement and theoretically binding on the entire international community. US sanctions are frequently unilateral, imposed by the US alone without corresponding UN or EU action, relying on secondary sanctions and dollar dependence for their global reach rather than universal legal obligation.

This distinction matters for risk assessment. A country sanctioned unilaterally by the US but not by the UN or EU creates a genuinely different compliance picture depending on which jurisdictions a firm actually operates in and which currency its transactions clear through.

Sanctions lists: what they actually are

Each regime maintains its own list of designated countries, entities, and individuals, and these lists don’t fully overlap. OFAC’s Specially Designated Nationals and Blocked Persons List, the SDN List, is the most referenced in AML compliance work, but the UN, EU, UK, and other jurisdictions maintain separate, independently updated lists. A name appearing on one list doesn’t guarantee it appears on another, and delisting from one regime doesn’t automatically remove a listing elsewhere.

This is precisely why sanctions screening tools typically check multiple lists simultaneously rather than relying on a single consolidated source, and why keeping screening data current against frequent list updates is an ongoing operational requirement, not a one-time setup task.

The humanitarian carve-out problem

Comprehensive, country-wide sanctions create a recurring tension: blocking a government’s access to funds can also block humanitarian aid to the population living under that government, often the people least responsible for the conduct being sanctioned. This tension is well documented enough that the UN Security Council adopted Resolution 2664 in December 2022, establishing a standing humanitarian exemption across UN sanctions regimes specifically to stop asset freezes from blocking legitimate aid delivery.

That exemption addresses one specific mechanism, UN asset freezes, and doesn’t uniformly apply across every national sanctions programme, which is why humanitarian organisations operating in sanctioned jurisdictions still need to check the specific exemptions available under each relevant regime rather than assuming one carve-out covers every list.

Sanctions in a firm’s own risk assessment

For a regulated firm, sanctions risk sits inside the broader customer due diligence process: screening customers, beneficial owners, and counterparties against relevant lists at onboarding and on an ongoing basis, since new designations happen continuously rather than on a fixed schedule. A customer or transaction that was clear at onboarding can become sanctioned months later, which is why sanctions screening has to be continuous, not a single check performed once.

Frequently asked questions

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